Zhongrong Trust’s missed payments spark fears among Chinese investors

Investors look at an electronic board displaying stock information at a brokerage firm in Shanghai, China, March 7, 2016. REUTERS/Aly Song/File Photo Get license rights

SHANGHAI, Aug 16 (Reuters) – Astute Chinese retail investors have raised questions about Zhangrong International Trust Co’s failure to list listed companies as it stoked fears of contagion spreading across the country’s financial system.

Investors have submitted more than 100 questions to the Shanghai- and Shenzhen-listed companies through investor relations platforms after the two listed companies revealed late on Friday that they had not received payment for maturing trust products from Zhongrong.

A long list of questions continues to grow, suggesting Zhongrong’s liquidity crisis could stoke broader fears and risk contagion in a financial system already under pressure from China’s sluggish economy.

Zhongrong managed assets worth 785.7 billion yuan ($107.69 billion) at the end of 2022, of which 629.3 billion yuan were linked to trust products, according to its latest annual report.

The negative impact of the Zhongrong incident “has been somewhat priced into the market,” said Huang Yan, general manager of private fund manager Shanghai Qiuyang Capital.

Zhongrong, controlled by Chinese financial conglomerate Zhongzhi Enterprise Group, has traditionally had significant real estate exposure. Its missed payments added to pressure on the financial sector from the country’s worsening asset crisis.

An investor on Wednesday asked Shanghai-listed New China Life Insurance Co ( 601336.SS ) — which owned 14 billion yuan ($1.92 billion) of products from Zhongrong at the end of last year — whether it was at risk of missed payments. The company did not respond.

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KBC Corp ( 688598.SS ) told investors on Wednesday that all the other wealth management products the company bought were low-risk products from banks and securities firms, after disclosing 60 million yuan of unpaid matured trust products from Zhongrong.

Investors also asked dozens of other listed companies, including Bescient Technology Co ( 688671.SS ), Shanghai New Vision Microelectronics Co ( 688593.SS ), Nanhua Instruments Co ( 300417.SZ ), Jiangsu Azure Corp ( 002245.SZ ). Products related to Zhongrong or Zhongzhi.

Most companies said they did not have such products or did not respond.

Topsperity Securities said that approximately 60 companies disclosed that they held Zhongrang’s trust products, most of which were smaller companies with a market value of less than 10 billion yuan.

Analysts at the broker say defaults on some products “do not represent an overall risk to the trust sector”.

“It’s like emotional turmoil, while there may be short-term impacts on the financial sector and some of the companies involved,” they said.

($1 = 7.2937 Chinese Yuan Renminbi)

Reporting by Jason Xue in Shanghai and Tom Westbrook in Singapore; Editing by Thomas Janowski and Jason Neely

Our Standards: Thomson Reuters Trust Principles.

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